For the past 4 years, investors and home buyers benefited from the Federal Housing Administration’s (FHA’s) waiver of its 90-day flip rule that addressed a housing market which was flooded with foreclosures. This waiver ended at midnight, December 31, 2014. This means that, effective January 1, 2015, FHA has reverted to its former policy of not insuring a property loan where title was transferred within 90 day or less. There are some exceptions to the FHA’s suspension of the 90-day rule. They are as follows:

4. Sales by state or federal financial institutions such as Fannie, Freddie or GSE

5. Sales of HUD properties where the President declares it a federal disaster area

What are not exempted from the rule are properties that were bought by investors and/or developers looking to do quick fixes and then flip the property. Financing will still be available, but selling prices of the end product — rehabbed houses for moderate-income buyers — are almost certain to be more expensive and may have a detrimental impact on entry-level homebuyers. The 90-day flipping restriction by FHA might also have some negative impact on some investors. However, it might be very minimal as many property flips are either cash purchases or financed with hard money loans, which enable investors to fast-track their property re-sales and maximize their profits.

Here are five points to consider with respect to the suspension of the 90-day waiver:

1. An Inconvenience for Investors:The 90-day rule reduces the pool of homebuyers to those who are not using FHA financing. Investors who are flipping at price ranges prime for FHA financing will definitely feel the negative impact of this rule.

2. Missed Homeownership Opportunities for New Buyers:Some would-be FHA buyers will miss the opportunity for homeownership because investors will be more likely to work with conventional buyers who can be processed more quickly than the FHA rule allows.

3. Less Available Housing Inventory:We are no longer experiencing the glut of home foreclosures that existed in 2010 when the FHA waiver was initially implemented. With fewer available foreclosures, the suspension of the 90-day rule is not too significant. When FHA first implemented the waiver in 2010, bank-owned sales represented 44% of the entire California housing market (Source: RealtyTrac), and by the last quarter of 2014, they comprise only 5.7% of all sales in the state (Source: DQNews).

4. Longer Selling Timeframes:Realistically, many investors easily take 30 to 60 days to flip a property regardless of the 90-day ruling status. Once rehabbed, the property is commonly on the market for 30+ days. Consequently, many homes will meet the time guidelines to qualify for FHA financing. For example, in large metropolitan areas in 2014, housing flips in the third quarter of 2014 took an average of 185 days, slightly less than the 187 of the previous quarter (Source: Yahoo! Finance and RealtyTrac 2014).

5. A Boost to Conventional Loan Products:The FHA’s suspension of the 90-day waiver will steer some buyers to use conventional financing. More creative financing options are likely to emerge as buyers seek new ways to accomplish quick flips without FHA financing.

Vanguard Hard Money and its affiliates have provided this overview. For a detailed explanation of the FHA’s ruling please consult the Federal regulations and/or legal counsel.

Loan Fee/Points: Use the drop-down box to select the "Loan Fees/Points" you anticipate.

Loan Points Cost: This field will be populated by the Analyzer spreadsheet. After you have completed the fields discussed above.

Escrow & Title Costs: When estimating the escrow and title costs for your proposed project, be sure to include the following costs: escrow fees, sub escrow fees, messenger fee, loan tie-in fee, wire fee, owners title insurance, lenders title insurance, recording fees, property taxes, city and or county transfer taxes and any other cost of purchase.

Number Months with Pre-Paid Payments: Your loan will have pre-paid payments that preclude you from having to make monthly payments for a pre-determined time. Enter the number of months to be covered by pre-paid payments.

Interest Through Closing: This field will be automatically populated.

Total Financing Cost (a): This field will be automatically populated and includes the total financing cost for: Loan/Fee Cost, Escrow & Title Cost, Additional Loan Fees, Pre-Paid Payments.

Estimated Profit or Loss: Resale Price: This field will be automatically populated.Less Purchase Price: This field will be automatically populated.Less Total Cost (Sections a+b+c of the form): This field will be automatically populated.Estimated Profit or Loss: This field will be automatically populated. A loss will be shown with a minus sign. Example $-95,250

Once all information has been entered, you can print the spread sheet for your records.

Need Assistance?The Rehab Deal Analyzer is designed for you to complete on your own or with assistance from one of our rehab loan consultants. Please call our office, and ask for Eric Allee at (800) 427-1441 or Email Info@VanguardHardMoney.com. He will be happy to help you complete the form and review different loan options available based upon your particular situation.

Since early May 2013 to mid-July 2013, 30-year fixed interest rate mortgages have jumped from 3.35% to 4.51%. This has led people to the question of what, if any, impact this trend will have on home sales prices. To address this question, The Federal National Mortgage Association, FNMA or more commonly known as Fannie Mae, studied mortgage rates going back to the 1990s. Fannie Mae’s research came to the surprising conclusion that rising interest rates had no impact on home sales prices but decreased the number of homes sold.

Fannie Mae’s study examined two time periods with increasing mortgage interest rates: 1) October 1993 – December 1994 when interest rates increased from 6.8% to 9.2%; and 2) October 1998 to May 2000 when interest rates increased from 8.5% to 6.7%. During the first interest rate increase, home prices leveled and fell slightly. During the second period, there was no impact whatsoever on housing prices. The historical study showed increasing mortgage interest rates are more likely to be linked to a decrease in the number of home sales not in home prices. The study concluded that home sellers are reluctant to lower prices regardless of the interest rate and homebuyers are eager to purchase and are willing to take on an adjustable rate mortgage loan to achieve their goal. The Mortgage Bank Association supports the study’s conclusion by saying people’s motivation for purchasing a home is primarily linked to personal factors such as, the need to relocate, changing space needs, and human emotion where the buyer simply falls in love with a particular house and wants to buy it.

Nonetheless, some experts predict that the rapid increase of mortgage points to 4.51% since May 2012 will have a negative impact on housing prices and the housing market recovery. An economist with Moody Analytics predicts, however, that buyers will not shy away from the current mortgage rate because it is far lower than the historical average of 6%.

Regardless of the viewpoint, it appears that the rising interest rate will not hurt housing prices but will simply reduce the volume of houses being sold.

If you would like to read more about the current trends in home sales, please refer to the following links that were used to write this article:

There are many sources to find properties available for purchase. The best way is to contact your local Real Estate Agent. They are the most qualified to help you with your search. Lenders and major banks can also be a good source for REO's.

A limited number of hard money lenders arrange and appraise rehab financing based upon "Future Value" of a property. Which is also called "After Repair Value" appraising. To clarify: Assume an investor/borrower has an opportunity to purchase a house for $125,000 and believes the "After Repair Value" is $175,000. If a loan is based upon the purchase price and the maximum Loan to Value (LTV) is 60%, the gross loan amount would be $75,000 ($125,000 times 60%). The down payment would be $50,000 plus cost.If a loan is based upon "Future Market Value" and maximum Loan to Value is 60%, the gross loan amount would be $105,000 ($175,000 times 60%). The down payment would be $20,000 plus cost, which is $30,000 less than the scenario above. This also increases the potential yield on invested dollars. Assuming the investor is able to negotiate a lower purchase price of $120,000, potentially his down payment would be decreased from $20,000 to $15,000 ($120,000 less $105,000).

This is why purchase of rehab properties using "Future Value" appraisals is so popular!

Prior to 2007 hard money lenders were lending as much as 75% of "Future Value". Today, because of the recession their guidelines are between 50% and 65% of "After Repair Value". Most lenders require a down payment of 10% to 20%.

The above example assumes the lender likes the property, borrower has decent credit and ability to make monthly payments. Hard money guidelines are not standardized and the example loan above may be approved by some hard money lenders and turned down by others.

With limited availability of funding from banks and other institutions hard money for many borrowers is the only game in town. Hard money lenders are helping with the purchase of both residential and commercial properties. Popular among lenders are loans to finance the purchase of non-owner occupied houses for short term holding. Typical dollars loaned on these properties are $100,000 to $600,000. Buyers are purchasing the properties substantially below the current market value. After repair and fix up they are sold for potential short term profit. If annualized the return on invested dollars can be substantial.

Hard money, also called private money financing is also available for apartments and small commercial properties. Bank guidelines are more conservative for these loans. Documentation is very extensive as banks pick and choose who to lend to. Fortunately, hard money lenders are in the market and are more liberal and aggressive than banks!

While hard money is available it is not as plentiful as it was prior to 2007. Many hard money lenders were burnt by the recession and have not returned to the market. Currently, there is a greater demand for loans than available money. As the real estate market improves private money lenders will return as they did after the seventies and nineties recessions.

It is more important than ever to present a complete and professional package to lenders when applying for financing. With the large volume of applications lenders have a tendency to put the poorly prepared packages at the bottom of the stack. Additionally, make honest full disclosure. Lenders will automatically turn down a loan if they feel the borrower is less than honest.